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Shareholders apathy


									23 Jan 2009

To: Dividend Investments Brokers

From: Bertus van Zyl

On Tuesday the 20th Jan a special general meeting of shareholders was held for the Zambezi
syndication done by Dividend Investments. The purpose of the meeting was to consider the sale of
the property to Capicol, the developer of this shopping centre and also the company that sold phase
three to Sharemax.

When City Capital took over the management of the Dividend syndications we asked valuers to place
a value on all the syndication properties. The value that they gave to the Zambezi Phase 1 & 2 was
approximately R76m. Dividend syndicated these two phases for R126m. This potential loss of R50m
is something we clearly could not accept and negotiated a transaction where the property will be
sold back to the developer at a price where we at least can get the investors capital back. All
investors have to date received their monthly income and I therefore considered this offer an
acceptable one given that the Zambezi syndication has a significant cash shortfall every month. This
cash shortfall is currently being propped up by City Capital on a loan basis until the syndication
structure could be normalised.

Due to the structure of the Dividend syndications and the shareholders agreements signed by their
investors, a vote of 75% of all the shareholders is required to dispose of the property. This was not
achieved due to two factors;

    1. Shareholder apathy
    2. Active campaigning against the decision by certain brokers

Shareholders apathy
Apathy is described as indifference, lack of concern, lack of interest, laziness etc. I am sure that I am
not describing the vast majority of shareholder, but with such a low voting percentage it will be
difficult to get anything done with the Dividend syndications if we do not encourage more people to

Those people that attended the meeting voted yes except for some broker(s) who actively
campaigned against the decision. The resolution to sell the building was therefore not carried and
the status quo remains. The result of the motion not being carried is that no further loans will be
extended to the Zambezi syndication by City Capital and investors will from this month only receive
the net proceeds produced by the property. This will mean a significant reduction in income for the
100’s of investors in Zambezi. I will shortly be writing a letter to the shareholders in the Zambezi
syndication explaining the situation as well as the risks they are now exposed to.

It furthermore means that debenture holders can sue the company for their income making the
possibility of liquidation a reality.

City Capital cannot continue to make loans where the shareholders are unwilling to be part of the
solution as it places them in an unacceptable risk position. City Capital will also not make any more
loans to any syndication after Feb 09. It is therefore imperative that we act quickly to normalise all
syndications and get them to a sustainable position before the end of February if all investors are to
receive their monthly income or will be able to exit the investment in a satisfactory manner.

The risk of not acting is that any debenture holder, Dividend Investments or City Capital (where they
have loans) or SARS can apply for the liquidation of the syndication. This will mean a forced sale of
the property and liquidation fees, all of which will erode the shareholder’s capital.

Due to the debenture structure of these syndications (specifically the income syndications) it is near
impossible to get bank finance once they understand the full picture.

I therefore urge you to speak to your clients and when they receive letter from us ask them to
contact you so they can respond. We will also keep you updated when we send letter to
shareholders. We will be having meetings during February where your clients will be able to exercise
his/her option with regards to the future.

I am fighting for the investors as best I can. Please support me to get closure on this drawn out
syndication saga.

Active campaigning by a few
There are some (and perhaps only one) brokers that are actively working against anything we do. I
say we because I am personally being targeted even though we have a full board of Directors looking
after the affairs of City Capital. By extension then, if I am criticized it reflects on the board of
directors. I do not act alone! To police our actions we have external directors in line with the King
reports on good corporate governance. In our case these are Alan le Roux (ALR Property Ventures)
and Herman Kriel (Ex Sanlam) and I would encourage you to look at the background and professional
qualifications of these gentlemen. Herman, as an accountant, is also the chairman of our audit
committee and together with Willie Viviers (our Financial Director and ex-PWC partners) and others
are responsible for ensuring the systemic well-being of our financial affairs.

The claims made by people like Andre Mathews needs to be scrutinized for facts before you just
believe what he says. Large volumes of words and numbers presented in all the colours of the
rainbow do not equal facts. Speak to me before you act on hearsay and uninformed conclusions
proclaimed by someone with a clear personal motive.

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